The boom real estate market in London is over.
At the beginning of 2017, it was becoming apparent that the London real estate market was significantly undervalued relative to the Greater Toronto Area. Reliable high-speed internet allowed many to escape the GTA so as to get much greater value for their house buying dollar. There was also a fair number of retirees who cashed in Toronto and came to London, taking advantage of the value differential and the availability of many detached one floor condominiums. By the middle of 2021, the London real estate market seemed like it might be finding its balance point relative to the GTA.
Then, as 2021 closed out and 2022 began, a strange thing happened. A combination of demand remaining strong, local sellers who might be looking to buy and sell getting nervous, and a mild winter that did not prevent travel from the GTA to London, resulted in a supply and demand imbalance leading to a steep, unsustainable increase in the price of detached homes. In February 2022, the price of a detached home in London reached the stratospheric average sale price of $961,701. This price level was unsustainable, and a correction was coming.
Since that moment, the last six months of real estate have brought big changes. Three rounds of interest rate hikes by the Bank of Canada to combat inflation have taken the wind out of the market. How big are the changes? Thus far, two thirds of the way through August 2022, that same home is now selling for $706,051. Typically, throughout the course of the year, prices will cycle up and down depending on the time of year. August is usually one of the low points every year along with December and January. If the Bank of Canada leaves rates where they are, prices should stay the same or tick up again slightly in the fall. While they are down 26.58% from February’s high, detached houses are still up 1.84% over August 2021’s average.
For townhouses, the other main option for family homes these days, the market peaked in March with an average price of $690,473. That has come down to an average of $479,389 in August 2022. That is 30.57% off March’s peak. It is also down 5.06% from August 2021’s average.
What does this mean for the future? It is hard to tell. Technically, we are still in a Seller’s Market. Will we return to a ballanced market? High inflation is still with us, and this may result in further interest rate increases by the Bank of Canada. For first time buyers this softening of the market is a good thing. Those who are buying and selling, looking to make a lateral move or to move up in value will be in a good place. Those who have bought recently or borrowed against the peak value of their property have put themselves in a tough position that will take more than a few years to resolve itself. The economic activity to support February’s prices may not be there for a number of years.
Again, as long as prices stabilize over the next few months and there are no further shocks to the system in the next couple of months, the end of 2022 and 2023 should be a good time to make a move up in the market. It may seem counterintuitive, but a soft market is the best time to make a move up and buy a larger home.
If you want to get a clearer idea of how this market has affected the value of your home, or to discuss the process of buying and/or selling in this current market, contact me for a free market valuation and consultation.
August 24, 2022
